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Professional Standards Manual

Notice of Change: Information in this manual changed when new agency and disclosure rules came into effect on June 15, 2018. Learn more about the new rules.

Trading Services

1. Practice Standards

(b) Agency - View Entire Section

(I) Agency - Nature of the Relationship

The Agency Relationship 

An agency relationship can be defined as a relationship in which one person, the agent, is granted the authority to represent and act for another person, the principal, in dealings with others. There are two key parties to an agency relationship: the agent and the principal. An agent is a person authorized to act on behalf of another person; that person is called the principal. When acting on behalf of the principal in dealing with third parties, the agent is essentially making a promise or guarantee to those third parties that the agent has the appropriate authority from their principal to act. This is known as the warranty of authority. Ideally, the agency relationship is created by a written contract where the authority of the agent is clearly laid out.

Generally speaking, an agent has the power to bind (or commit) the principal to do certain things. For example, if the agent is empowered to sign a contract with a third party on behalf of the principal, the parties to the contract will be the principal and the third party. The agent is not a party to the contract (and will not have any rights or obligations under the contract). This is a very important concept to keep in mind. The authorities to bind another person to certain things, represent another person in dealings with others, and act on behalf of another person in dealings with others are powerful rights that the law takes seriously.

When providing real estate services, the nature of the relationship that is created between the buyer/tenant or seller/landlord and the brokerage, including its related licensees, is important. The relationship may be either a sole agency, dual agency in very limited circumstances, or no agency relationship. These distinctions are important for both the brokerage (and its related licensees) and the buyer/tenant or the seller/landlord to consider, since the nature of the relationship that is established, whether sole agency, dual agency in very limited circumstances, or no agency, determines the duties and obligations of the brokerage and its related licensees, as well as the level of assistance and representation that the party will receive. Regardless of the type of relationship that has been established, under section 3-4 of the Rules, licensees must act honestly and with reasonable care and skill whenever they are providing real estate services.

(courtesy of UBC Sauder Real Estate Division Trading Services Licensing Course Manual)

Sole agency

There are different types of sole agency relationships. One type of sole agency, ‘designated agency’, occurs when the brokerage and the client agree that the brokerage will designate one or more licensees engaged by that brokerage to provide real estate services as sole agent for the client. In designated agency, the brokerage has contractual duties to the client but it is the designated agents who act as sole agent for the client. Another type of sole agency, the historical model of real estate agency, is referred to in this material as ‘brokerage agency’. In brokerage agency, it is the brokerage that is the agent of the client, and all licensees engaged by that brokerage automatically assume the same agency obligations as the brokerage in relation to that client. When the brokerage only represents one client in a particular transaction, this is referred to as ‘sole’ agency.

Section 3-3 of the Rules details the duties typically associated with brokerage agency, where a brokerage is the agent and all its related licensees assume the same duties in relation to the brokerage’s clients. In such circumstances, when they are engaged by a client to provide real estate services, the brokerage and its related licensees must:

(a) act in the best interests of the client;

(b) act in accordance with the lawful instructions of the client;

(c) act only within the scope of the authority given by the client;

(d) advise the client to seek independent professional advice on matters outside of the expertise of the licensee;

(e) maintain the confidentiality of information respecting the client;

(f) without limiting the requirements of Division 2 [Disclosures] of Part 5 [Relationships with Principals and Parties], disclose to the client all known material information respecting the real estate services, and the real estate and the trade in real estate to which the services relate;

(g) communicate all offers to the client in a timely, objective and unbiased manner;

(h) use reasonable efforts to discover relevant facts respecting any real estate that the client is considering acquiring;

(i) take reasonable steps to avoid any conflict of interest;

(j) without limiting the requirements of Division 2 [Disclosures] of Part 5 [Relationships with Principals and Parties], if a conflict of interest does exist, promptly and fully disclose the conflict to the client.

A brokerage and client may agree to modify or make inapplicable one or more of these duties. This would happen, for example, in the very limited circumstances when clients agree to dual agency or other forms of limited duties arrangements.

Section 3-3.1 of the Rules identifies how such modifications are to be documented. The agreement to modify or make inapplicable duties must be contained in a written service agreement (e.g. a listing contract, buyer agency contract, or dual agency agreement).

The agreement must identify what duties have been modified and how they have been modified, and what duties, if any, that have been made inapplicable.

Despite an agreement to modify these duties, the brokerage continues to have duties to supervise its related licensees and to not disclose confidential information.

Section 3-3.2 of the Rules identifies how the duties established by section 3-3 may be modified to create a designated agency relationship. In designated agency, the brokerage and the client agree that these duties – other than the duty shared with the designated agents to keep the confidences of the client, and the holding of money on behalf of the client – are the responsibility of the designated agents only. The brokerage and the client agree that no other licensees engaged by the brokerage have any of these duties to the client. The brokerage continues to have duties to supervise its related licensees and to not disclose confidential information, and it must treat the interests of all clients in an even handed, objective, and impartial manner.

 

Dual Agency

Dual agency is prohibited under section 5-16 of the Rules. However, there is a very limited exception in section 5-17(1) of the Rules. A brokerage may engage in dual agency in respect of a trade in real estate if:

  • The real estate is in a remote location;
  • The remote location is under-served by licensees; and
  • It is impracticable for parties to be provided trading services by different licensees .

Please refer to the Disclosures, section (h) for a discussion of the exception. This disclosure form under section 5-17 (Disclosure of Risks Associated with Dual Agency) is mandated by Council. The terms of the dual agency agreement are not mandated by Council, but the agreement must comply with RESA and the Rules.

Dual agency can occur in brokerage agency or in designated agency. In brokerage agency, both the brokerage and all of its licensees owe fiduciary duties to clients who enter into a service agreement with the brokerage. In designated agency, the service agreement provides that only the one of more licensees designated as the exclusive licensee(s) of the client owe fiduciary duties to the client. The brokerage does not owe fiduciary duties to the client.

Under brokerage agency, licensees of that brokerage who act for both the buyer/tenant and seller/landlord, or for competing buyers/tenants would be in a conflict of interest and so would the brokerage.

Under designated agency, as long as the buyer/tenant and the seller/landlord or the competing buyers/tenants have different designated agents, even thought those agents are in the same brokerage, there is no “dual agency” and therefore no conflict. Under designated agency, dual agency would only arise if the same designated agent tried to act for both the buyer/tenant and seller/landlord, or tried to act for competing buyers/tenants in the same transaction.

 

No Agency – Unrepresented Party

A licensee may also agree with a buyer/tenant or a seller/landlord that they will provide real estate services to them but not act as an agent on their behalf in a transaction. In other words, there will be no agency representation. In such a case, the buyer/tenant or the seller/landlord will not be a client. 

For example, a licensee that acts on behalf of a buyer in negotiations with a seller who is attempting to sell their home on their own can choose the nature of the relationship the licensee wishes to establish with the seller. If the seller agrees, the licensee can provide limited real estate services, including entering into a fee agreement with the seller, without creating an agency relationship with the seller.

[updated 06/15/2018]